Commenting on Regulations that were approved by Parliament this week, David Everett, Research Partner at LCP, said:
“For trustees of some DB schemes, these regulations contain a nasty surprise on which there has been no consultation. From 6 April 2018 those DB schemes that operate a transfer value basis greater than the legislative minimum may need to put in place a new further calculation routine on that minimum basis, purely in order to test whether the £30,000 threshold above which the member may need to obtain advice has been breached.
"In Parliament the Pensions Minister said that these regulations “will reduce confusion for pension scheme members and burdens for industry". Although this may be true for certain benefits provided largely by insurance companies, it is certainly not the case for the DB schemes above.
"As such this is an unnecessary further complication to transfer processes that are already under severe strain due to the increased demand from scheme members to transfer their DB rights into DC arrangements. The DWP should have withdrawn these regulations and consulted on this issue of their own making, but instead, for certain DB schemes, they have added further complexity to an already complex process.”
The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No 2) Regulations 2017 seek to clarify how so-called “safeguarded-flexible benefits” should be valued for the purpose of the £30,000 threshold test and follow on from regulations settled in July that require schemes providing such benefits to provide risk warnings to members who are thinking of transferring or converting them to flexible benefits.
Safeguarded-flexible benefits are benefits that are DC in nature but offer some form of guarantee in relation to the pension income that will be available to the member such as a guaranteed annuity rate.